Why the Syrah Resources Ltd share price surged higher today

The Syrah Resources Ltd (ASX:SYR) share price has been a big mover today after announcing that it has finalised its mining agreement…

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One of the biggest movers on the local market today has been the Syrah Resources Ltd (ASX: SYR) share price.

In afternoon trade the graphite miner's shares are up 8% to $2.94.

Why have its shares rocketed higher?

This morning Syrah announced that it has finalised the negotiation of a mining agreement with the Ministry of Mineral Resources and Energy of the Republic of Mozambique.

According to the release, the mining agreement consolidates all prior project documents and approvals.

Furthermore, the agreement also provides Syrah with clarity around the governing laws and, importantly, contractualises the mining rights and other obligations for its Balama Project in Mozambique.

The next step will be having the agreement signed by the company and the Minister of Mineral Resources and Energy. It will then be presented to the country's Administrative Court for sanctioning, before finally becoming binding and enforceable.

Key commercial terms of the agreement will be release once it is signed and becomes binding and enforceable.

Judging by the share price reaction today, it appears as though some short sellers had not expected the process to go as smoothly as it has.

I suspect this could be partly why its shares have moved so strongly today. After all, the company is one of the most shorted shares on the Australian share market.

Should you invest?

While I think the company's Balama Project is an incredible asset, I would suggest investors hold off an investment for the time being.

There are concerns that the sheer size of the project could lead to a significant increase in graphite supply that puts pressure on prices.

In light of this, I would suggest investors wait to see what prices the company can command when production finally commences.

Until then, I think the shares of Galaxy Resources Limited (ASX: GXY) and Kidman Resources Ltd (ASX: KDR) may be better options for investors looking for exposure to the industry.

Motley Fool contributor James Mickleboro owns shares of Galaxy Resources Limited. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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